The Dos and Don'ts of Social Security

Proposals for radical changes to Social Security may undermine its basic function—to keep the elderly, permanently disabled, and orphans out of poverty. What can we do to fix Social Security without destroying it?


DON'T panic.

Social Security is not in crisis and is not about to go bankrupt. Two government agencies estimate that Social Security can pay 100 percent of promised benefits for the next 36 to 47 years.


DON'T try to solve the shortfall with benefit cuts.

The president's proposal to cut guaranteed benefits for those with incomes greater than $20,000 is unfair to today's 40- and 50-somethings, who have paid more than their fair share, to younger workers who would face the steepest benefit cuts, and to low- and middle-income Americans who rely on it.


DON'T privatize Social Security.

Private accounts would leave most workers worse off: they'd borrow money from the government and, at retirement, take a big cut in their Social Security checks to repay the loan, plus 3 percent interest, plus inflation. Private accounts make Social Security less solvent, requiring trillions in new government borrowing while the U.S. is running record debts.


DO increase revenue through raising the wage cap.

Social Security taxes only the first $90,000 of wages. Most people don't even know there's a cap because only 6 percent of Americans hit it, yet the cap represents a lot of lost revenue for Social Security. A primary reason for the long-term shortfall is not aging baby boomers, but greater wage inequality—the rich are getting richer, and more of their wages are escaping taxation. Raising the cap so that it covers 90 percent of wages—about $145,000 in 2005-—would address 40 percent of the projected shortfall. That's plenty for now.


DO consider other ways to raise revenues.

If we don't raise the wage cap, there are other fair ways to raise revenue. We could reverse some of the Bush tax cuts and dedicate the revenue to Social Security. We could impose a new tax on the wealthiest Americans or allow the government to invest some of the Trust Fund's assets in the stock market. The estimated 75-year shortfall is a moving target; we can close some of it now and revisit the question in 10 or 20 years when we know what the economy looks like.


DO strengthen the entire retirement income system.

We should be increasing guaranteed Social Security benefits, encouraging employers to provide pensions, and raising the national savings rate. Promising strategies to help low- and middle-income workers save for retirement include making enrollment in 401(k)s automatic unless workers choose to opt out; improving the “saver's tax credit” beyond 2006 and making it refundable to those who don't owe taxes; and offering matching funds to workers who invest in IRAs and 401(k)s.


Two-thirds of Americans get more than half of their retirement income from Social Security, and one-third get more than 90 percent. Social Security keeps millions of disabled workers, dependents of deceased and disabled workers, and retirees out of poverty each year. This rich nation can easily afford to continue funding this safety net. We can't afford to put it—and Americans—at risk.


Amy Chasanov is the former deputy policy director at the Economic Policy Institute,




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